Samsung to Offer Fewer Smartphone Models to Cut Costs

By Todd R. Weiss  |  Posted 2014-11-19 Print this article Print
Samsung Galaxy smartphones

The move by Samsung is meant to help the device maker turn around recent poor financial results as it focuses on fewer smartphone models and increased cost efficiencies.

Samsung will reduce the number of smartphone models it offers for sale around the world by about 25 to 30 percent as it works to right its bottom line after several disappointing earnings periods.

The smartphone line reductions were unveiled by Robert Yi, Samsung's head of investor relations, during a presentation in New York, according to a Nov. 17 report by The Wall Street Journal. The company did not disclose the exact number of models that would be affected by the reduction, according to the article.

"The decision to streamline its large smartphone portfolio came as the company seeks to cut costs to better compete with cheaper models, mainly from Chinese smartphone makers such as Xiaomi Inc.," The Journal reported. "Having fewer models will allow Samsung to better manage its inventory and supply chains, analysts say, at a time when demand for its Galaxy smartphones is waning."

 The product line reductions come less than a month after Samsung reported third-quarter sales of $45.1 billion, down 19 percent from $56 billion during the same period last year.  The company's net profits fell to $4 billion in the third quarter ended Sept. 30, from $7.8 billion in the same quarter last year.  The company's lower net profit in the latest quarter was also a 32 percent drop from $5.9 billion in the second quarter of 2014. Total third-quarter revenue fell 9.2 percent from $49.7 billion in the second quarter.

Samsung officials did not respond today to an eWEEK inquiry about the smartphone model reduction strategy.

Two analysts who spoke with eWEEK about the smartphone line cuts said it is the right move at the right time as the company works to find an improved financial outlook.

"When a company is hemorrhaging money, it makes sense to cut SKUs and focus on doing really well on a handful of products," said Dan Maycock, an analyst with Transform (formerly OneAccord Digital). "I think initially they're going to see how this goes, and if they need to cut back further, they can."

Such a strategy is not unusual for companies to follow in such situations, he said.

Before being acquired in April by Microsoft for some $7.1 billion, Nokia's former handset division went through several metamorphoses over time, including moving to support for multiple operating systems and then eventually changing to support only one OS, said Maycock. Under the earlier model, Nokia had had been supporting Symbian and Windows, but it was too much duplicity and caused undesired issues for design teams.

Charles King, principal analyst for Pund-IT, said he agrees that the Samsung move to pare down its smartphone lines is the proper approach for the company as it works to get out of its financial doldrums.

"Samsung's move is purely aimed at significantly reducing expenses over the long and short term," said King. "The company was right to go all-out when the smartphone market was relatively young, but now that it's reaching maturity, with sales stalling in some markets, Samsung really can't afford to maintain and refresh such a large stable of products."

Having lots of models "can work when you're servicing numerous distributors, some of whom want bragging rights for exclusively handling 'unique' products, like the Note 4 and Note 4 Edge," said King. "Given the realities of the marketplace and Samsung's economic circumstances, I expect we'll see several of their smartphones consolidated into a more manageable and thriftier portfolio."

During its October earnings call, Samsung said it planned to make big changes in its smartphone strategy in 2015 and would seek more efficiency. The cutbacks in the smartphone lines aim to do just that.

Despite its recent sales troubles, the Korean company continues to lead the global industry in both mobile phone and smartphone shipments, with 78.1 million devices and a 23.8 percent market share for the third quarter, compared with 39.3 million devices and a 12 percent market share by its next-closest competitor, Apple, according to recent figures released by IDC.

Samsung has historically dominated the phone market in recent years by offering a variety of devices at a wide range of prices, and by meeting consumers' interest in large displays, while Apple continued to limit the size of its iPhones. That is likely changing since Apple's larger new iPhone 6 Plus and iPhone 6 smartphones hit the market in September.

In addition, Samsung's sales are also being hit in the lower end of the market, particularly in China, the world's largest smartphone market. There, Lenovo, Xiaomi, Huawei and other local brands have strong followings—and the support of the Chinese government, which owns the wireless carriers


Submit a Comment

Loading Comments...
Manage your Newsletters: Login   Register My Newsletters

Rocket Fuel